GenCorp is a small-cap stock with a market capitalization of nearly $700 million. It makes aerospace and defense products and systems and has a real estate segment. The company made $0.05 diluted income per share in the fourth quarter versus $0.01 a year ago. Revenue increased 18 percent to $298 million.

To make his case, Gabelli pointed to GenCorp's $550 million deal to buy Pratt & Whitney Rocketdyne from United Technologies. "They bought Rocketdyne and they're closing on that. And that business — the basic manufacturing business, which has short term hiccups — will earn about 70 cents in three or four years."

GenCorp also has "significant acreage" in the Sacramento, Calif.-area and "real estate is booming," he said.

On Monday, Gabelli announced that his firm increased its stake in the global asset management company to 5 percent.

A major reason for his faith in shares of Legg Mason: "[They're] buying back their stock. They had 164 million shares outstanding, they're down to 128," giving it about a $3.6 billion market cap. "They [also] announced that two thirds of their cash flow is going to buy back stock."

Gabelli added, "They're in the investment business, great cash generator, and they're solving a lot of their issues."